A Post-'Grokster' Struggle Seen

As a result of the high court's reinstatement of MGM's suit against Grokster and StreamCast last week, the contours of the Court's "inducement rule" concerning copyright infringement will be battled over in the lower federal courts, which may not take as balanced a view of liability as the justices, say copyright scholars and experts. "By setting a fairly broad inducement standard, the Court has given the lower courts the tools to figure out who the bad actors are," said one attorney.

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The contours of the U.S. Supreme Court’s “inducement rule” concerning copyright infringement will be battled over in the lower federal courts, which may not take as balanced a view of liability as the justices did in their recent file-sharing decision, said copyright scholars and experts. In MGM Studios Inc. v. Grokster Ltd., No. 04-480, a unanimous high court last week reinstated MGM’s suit against Grokster and StreamCast, makers and distributors of so-called peer-to-peer (P2P) software, which charged the two with “mind-boggling” infringement by users of their software. In an opinion strongly suggesting that MGM may prevail on its summary judgment motion, Justice David H. Souter wrote, “One who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties.” Mere knowledge of infringing potential or actual infringing uses would not be enough for liability, Souter noted. EVIDENCE OF INDUCEMENT Outside of the Grokster/StreamCast context, where evidence of inducement to infringe was viewed by the high court as very strong, the inducement rule will be “easy enough” to apply where a business is truly based on copyright theft/infringement, said Ian Heath Gershengorn of the Washington office of Jenner & Block, whose partner Donald Verrilli Jr. was the winning high court counsel to MGM. Souter isolated three factors to be considered in showing inducement to infringe, noted Gershengorn: a goal to satisfy market demand for copyright infringement; failure to develop filtering tools to diminish the infringing activity using their software; and a business model where there is a direct tie between profit and infringement. The latter two factors are critical to the analysis, and “should give a lot of comfort to content providers that liability will be imposed where appropriate,” he said. “By setting a fairly broad inducement standard, the Court has given the lower courts the tools to figure out who the bad actors are.” But Souter in a footnote and in the text said that each of those two factors, standing alone, would not be sufficient evidence of intent to induce infringement, noted Lawrence B. Solum of the University of Illinois College of Law. “The final element is direct proof of intent,” he said. “We don’t know what they meant by that. It’s a fairly cryptic statement.” Footnote 12 in the opinion suggests, he said, that with intelligent legal engineering of a multiple-purpose software design and good internal and external communications telling people what they can and cannot do with the software, “We’ve got a very, very difficult proof situation for the plaintiffs.” District courts will struggle with the language of Grokster and seek limiting principles, predicted cyberlaw scholar Susan Crawford of Yeshiva University Benjamin N. Cardozo School of Law. “It seems clear mere distribution of technology alone is not contributory infringement, but the question is how much more than mere distribution is needed before inducement can be found,” she said. There will be arguments that corporate statements of intent to encourage infringement are a necessary prerequisite to inducement claims, said Crawford. And, there also will be arguments that business plans need to be exclusively structured around the idea of encouraging infringement, she added. “So both sides of this debate will see Grokster as a Rorschach test,” she said. “The studios will claim that almost any corporate knowledge of infringement by users of the technology amounts to inducement liability. Technology companies will point to other language in Grokster saying mere knowledge can never be enough to constitute inducement and much more focused, express corporate acts are necessary.” Copyright infringement is strict liability, said Eric Goldman of Marquette University Law School. If plaintiffs show that the defendant did the wrong act, there is strict liability. “The fact there is an intent standard here does raise the bar quite a bit on what constitutes inducement from the garden-variety, strict liability claim,” he said. “However, the real battle will take place in lower courts. There is, I think, significant opportunity for misinterpretation of the opinion, in which case, it may become a lot easier to prove inducement than what the Supreme Court intended.”

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